Exporting Software: To file or not to file? Part 2

In my last post, I discussed the requirement to file exports of mass market software. Now, I’ll discuss and clarify the requirements of reporting intangible products such as customized software or products.

The Foreign Trade Regulations (FTR) recognizes customized software as software that is not sold at retail locations and is commonly designed for the specific use of the recipient. Customized software is normally transmitted over the Internet via an e-mail or download, or on a CD or DVD. Let’s take a closer look at these two scenarios.

An e-mail or download of information is not considered a physical good. You can’t touch an e-mail; you can’t place your hands on a download. What are the responsibilities of a U.S. company or individual selling an intangible product to a foreign party through an e-mail or one that is downloadable via the Internet? Based on the FTR 30.2(d)(3), “electronic transmissions and intangible transfers… shall be excluded from the EEI filing.” No EEI record is required.

What if you’re selling customized software on a CD or DVD?

The software is on a CD or DVD, which makes it a physical good that must be filed in the AES. Now you’re probably asking yourself, what value do I report? For customized software you will report the value of the media (i.e. CD, DVD, etc.).

For example, you sell customized software to a company in Germany that can only be used by this company. The software is loaded on a CD and shipped out of the U.S. You charge the German company $10,000 for this software, but the actual value of the CD is $2. What value needs to be reported in the AES? You would report $2; however, this shipment would be exempt from filing because it is less than $2,500 per Schedule B number and no license is required. In this scenario, you would provide the exemption for low value shipments, “NO EEI 30.37(a)“. On the other hand, if a license were required in this example, the CD would have to be reported in the AES.

Remember, the FTR requires the value of the physical good, whether CD or DVD. If you can’t touch it, you do not need to report the EEI in the AES.

12 Responses to Exporting Software: To file or not to file? Part 2

I’m confused. I have customized software that requires a BIS license. My customers sign on to a secure website to update thier software, so there is no physical item. When I applied for the BIS license for the instrument, I also added these software updates. As there is no physical thing, for the value, I used the value of the product support that they have purchased.
Are you saying that I do not need to file AES for these software updates even though the software is controlled and requires a license according to the EAR?

Based on your statements “update their software… there is no physical item…”, you are correct that no AES record is required in this scenario. The AES is used to track tangible goods that leave the United States. Even though there is a Bureau of Industry and Security (BIS) license you still are not required to file the information in the AES because there is no tangible item. However, you must adhere to BIS’s licensing requirements.

What about if we mail a paper copy of a license? One, do we classify this at all? If so, do we use printed matter as the classification? Is it considered a physical good since it has been printed on paper? Two, do we file AES? If so, what value do we report?

Mailing a paper copy of the export license will not be required to be reported in the AES. In this case, the paper copy of the export license, as you state “the printed matter” would not be valued over $2,500 and would not be required to be reported in the AES.

Omari, Thanks so much for your response on part 2 of my question. Could you help clarify part 1 of my question. If we mail a paper copy of a license? One, do we classify this at all? If so, do we use printed matter as the classification?

The AES is not required for this type of shipment and as a result classification is not needed for Census purposes. However, if there are State Department requirements, you may need to contact them directly.

If a company sells a server, with preloaded customized software. It is not mass-market software. It is loaded in to the harddrive of the server. The server is valued at $10,000, but the software is valued at $15,000. The vendor sells the system for $25,000, —$15,000 of which is the software. How is this reported on the AES?

Based on FTR 30.2(a)(1), information reported in the AES is for “all exports of physical goods.” In your example, the software, “preloaded customized software”, is not a physical good. However, the server is a physical good, which would need to be reported. As stated, we require the value of the media for exports of customized software and in this case, we would consider the server as the media of the “customized software”. The selling price of the server is $10,000 and that’s what it required to be reported in the AES.

What if the software is downloaded electronically, but the software licenses/access keys are sent via paper document? The downloaded software is useless without the licenses/access keys. No physical export. The cost of the licenses/access keys via paper document is $25,000.00. Is this transaction required to be reported in the AES?

@George: The value required for the physical export of the license/access keys via paper document, would only be the value of the paper. More than likely the piece of paper would be valued under $2500 which would not be required to be reported based on 30.37(a). The electronic download would be consider an exclusion and not required to be reported in the AES, based on FTR 30.2(d)(3) “Electronic transmissions and intangible transfers”. If you don’t have to file in the AES because of 30.37(a) or 30.2(d)(3) make sure you adhere to licensing requirements, if needed.